TARP Recipients Will Be Required to Modify Loans

By Dawn Kopecki

April 9 (Bloomberg) -- U.S. banks receiving federal aid through the Troubled Asset Relief Program will be required to modify mortgages for borrowers under the Obama administration’s Making Home Affordable initiative, Housing and Urban Development Secretary Shaun Donovan said.

“We’re also going to require as a condition of participation in TARP going forward that banks do participate in this plan,” Donovan said in an interview on Bloomberg television today.

Since President Barack Obama announced his plan in February to help refinance or modify loans for as many as 9 million borrowers, refinancings have risen 88 percent and mortgage rates have dropped to record lows, Donovan said. Mortgage applications in the U.S. rose last week to the highest level in three months, according to the Mortgage Bankers Association.

“We’re certainly seeing some early good news,” Donovan said. “It’s a sign that the administration’s plan is working.”

The U.S. Treasury has so far doled out $328.4 billion from its $700 billion TARP fund to recapitalize banks.

The average rate on a 30-year home loan fell to a record low 4.78 percent in the week ended April 2, according to data tracked by Freddie Mac, the McLean, Virginia-based mortgage buyer. The rate increased to 4.87 percent in the most recent week.

To contact the reporter on this story: Romaine Bostick in Washington at rbostick@bloomberg.net.